The Commerce Department said Wednesday that inflation increased slightly in October as the Fed searches for signals about how much to cut interest rates.
A 12-month inflation rate of 2.3% was indicated by a 0.2% monthly increase in the personal consumption expenditures price index, a broad indicator that the Fed favors as its inflation gauge. Although the yearly rate exceeded the 2.1% threshold in September, both were consistent with the Dow Jones consensus prediction.
When food and energy were taken out of the equation, core inflation showed even more robust figures, rising by 0.3% each month and 2.8% annually. They both fulfilled expectations as well. Compared to the previous month, the annual rate increased by 0.1 percentage points.
The majority of the month’s inflation was caused by growing services costs, which increased by 0.4%, while goods prices decreased by 0.1%. Energy prices decreased by 0.1%, but food prices barely moved.
The Fed launched an aggressive rate-hiking campaign after PCE inflation surpassed the 2% annual objective set by Fed policymakers in March 2021 and reached a peak of about 7.2% in June 2022.
Following the publication, stocks were mixed, with the Dow Jones Industrial Average rising almost 100 points while the S&P 500 and Nasdaq Composite were also down. Treasury yields decreased.
Traders boosted their bets that the Fed will approve another rate drop in December, even if headline inflation climbed. According to the CME Group’s FedWatchmeasure, the central bank’s benchmark borrowing rate had a 66% chance of dropping by a quarter percentage point Wednesday morning.
Even though the inflation rate has decreased dramatically since the Fed began tightening, households still struggle with it, and it played a big role in the presidential election. Even if it has slowed down in the last two years, consumers have been severely impacted by inflation overall, especially those with lower incomes.
Despite a little decline from September, consumer expenditure was nevertheless strong in October. According to the study, personal income increased by 0.6%, significantly exceeding the 0.3% expectation, while current-dollar expenditures increased by 0.4% for the month, as anticipated.
At 4.4%, the personal savings rate fell to its lowest level since January 2023.
Despite predictions that the pace would slow as rents decreased, housing-related expenses have kept driving up the inflation figures. In October, housing prices increased by 0.4%.
The Fed utilizes a wide range of indicators to measure inflation, but its primary policy tool and forecasting tool is the PCE number. The data, which accounts for consumer purchasing patterns including switching from more expensive to less expensive things, is said to be more comprehensive than the Labor Department’s consumer price index.
Although officials evaluate both figures when deciding on policy changes, they typically view core inflation as a more accurate long-term indicator.
The announcement comes after the Fed lowered interest rates three quarters of a percentage point in September and November. The November cut was widely anticipated by markets, even though it occurred after the month covered by the study.
At their November meeting, Fed officials expressed confidence that inflation was approaching the 2% objective, but members favored a gradual interest rate lowering because they were unsure of how much would be required.
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